How to Get Ready to Sell Your Business

There are critical steps to take before you sell your business. Here’s what you need to know about the process.

When you're getting ready to sell a home, you often make minor improvements to drive up the price or boost its curb appeal. You might also stage it or hire a real estate agent to help you through the process.?

The decision to sell your business is similar. You can pop a price tag on it and hope for the best, or you can spend some time improving it before the sale. You can also work with a mergers and acquisitions specialist to ensure you get the best deal possible.?

This guide covers some of the essentials you should do before you sell your business so you can get a handle on where to start.?

1. Focus on profitability by boosting revenue

There are many ways to estimate the value of a business, but popular valuation models are based on the business's profitability. Before putting your business up for sale, spend time focusing on its profitability. Find ways to increase revenue and prioritize this goal. If you have extra funds, for example, you may want to invest them in revenue-driving activities rather than in paying down debt.?

2. Cut costs

The flip side of profitability is cutting costs. In addition to boosting revenue before you sell your business, you’re going to want to find ways to cut costs. Ideally, this process should take place in the year or so before you sell. Investors want lean, money-making machines. Those who see potential in a business that's spending a lot may buy it to improve it, but you will likely garner a much higher price if you make the improvements yourself before they purchase it.?

3. Get your financial documents in order

You need strong accounting records to show prospective buyers how successful your business is. There are a few financial basics: If you haven't been doing detailed bookkeeping, for example, it's time to start. You will also need copies of your business tax returns, and you can hire companies to do retroactive bookkeeping as needed.?

After that, you may want to go a step further. Projections show prospective buyers how your business is likely to do in the future. You may also want to do a scenario analysis, which guides buyers through what-ifs. It might show what would happen if your business expanded services, launched a new site, increased or cut back on employees, or made other changes.?

4. Consider having your financial documents audited

Keep in mind that buyers may have to take your word for a lot of the information shown on your financial documents. To reassure them the info is correct, you may want to have the documents audited by a third party. This can be expensive, but it may be worth it if it helps to reassure a skittish buyer.?

5. Take care of lawsuits and liens

Most buyers don't want to deal with unresolved liens and lawsuits. Some liens, such as those related to mortgage or equipment loans, are easy to include in a sale. If you owe back taxes or have liens due to unpaid bills, however, you should address them before you sell your business.?

6. Don't overlook the value of your team

Part of your business's value is in its profitability and assets, but some comes from your staff. Your core leadership team and key employees keep your business running, and operations (and value) may suffer without them.?

You therefore need to safeguard your staff. If you see employees who aren't happy, find ways to boost job satisfaction so you can avoid losing them. Alternatively, you may want to cross-train some employees or do some recruitment so you don't have to worry about a talent gap if someone tries to leave.?

You will eventually need to address the potential sale with your team, however. Talk with them about their wish lists in the event of an acquisition, and help them understand what to expect during the transition process.?

7. Identify strategic buyers

Getting ready to sell your business is just the beginning. You’ll want to find a strategic buyer, because they? will almost always get you the best price. They don’t just see your business as a good deal or lucrative investment. Instead, they have a very strategic reason for wanting your business in particular:?

• A strategic buyer may need your business to round out their portfolio.?
• They may have a similar business and want to expand into your area.?
• They may have a complementary business that will excel when combined with your existing one.?

There’s another perk here: Because these prospective buyers have a very specific reason for wanting your specific business, you can leverage that need to drive the price up.?

8. Don't underestimate the value of your company

Selling your business may be one of the highest-priced transactions you will ever experience. A sale can put a lot of money into your pocket, but you need to make sure it's enough. You should work with a professional to help you through this process as successfully as possible. They can help you value your business so you know what it's worth, plus find ways to drive up its value before a sale. Most importantly, they can help you identify prospective buyers and negotiate the best deal.?

9. Partner with the experts when you sell your business

At SF&P Advisors, we have extensive experience guiding our clients through mergers and acquisitions. We specialize in the plumbing and HVAC industries, and we can guide you through the process to buy or sell your business.?

Ready to learn more? We start with a free valuation of your business and then discuss the next steps. For one-on-one attention, book a call with Brian today. Like the SF&P Advisors Facebook page to keep up to date on all the latest news, tips, and tricks from our company.